Dollar Rally Erases Gain in Commodities, US Stocks After Jobs
Dec. 4 (Bloomberg) -- The biggest rally in the U.S. dollarsince June snuffed out an advance in commodities and equities asan unexpected drop in the unemployment rate triggered bets theFederal Reserve will lift borrowing costs. Gold slid the most ina year and two-year Treasuries tumbled.
The Dollar Index, a gauge of the currency against six majortrading partners, jumped as much as 1.5 percent. Odds that theFed will boost interest rates by its June meeting rose to 53percent from 31 percent a week ago, according to Fed fundsfutures trading. The Standard & Poor’s 500 Index lost 0.2percent to 1,097.31 at 2:23 p.m. in New York, erasing a 1.8percent rally, and oil and copper reversed earlier gains.
“Good economic news is a boost for the dollar, becauseultimately the Fed raises rates, and by raising rates you aregoing to push your currency up,” said Quincy Krosby, a marketstrategist for Newark, New Jersey-based Prudential FinancialInc., which oversees about $641 billion.
Stocks rallied at the start of trading after the LaborDepartment said the U.S. lost 11,000 jobs last month, the fewestsince the recession began and less than one-tenth the 125,000median estimate in a survey of economists. The unemployment ratedropped to 10 percent.
The improving labor market indicates the deepest U.S.recession since the 1930s may have ended, though it is too soonto say precisely what month it stopped, said the head of thegroup charged with making the call.
Employment ‘Trough’
“Today’s report makes it seem that the trough inemployment will be around this month,” Robert Hall, who headsthe National Bureau of Economic Research’s Business Cycle DatingCommittee, said in an interview. “The trough in output wasprobably some time in the summer. The committee will need tobalance the midyear date for output against the end-of-year datefor employment.”
The dollar has slumped this year, spurring demand forcommodities as an inflation hedge and alternative investment, asthe Fed kept benchmark U.S. interest rates near zero percent torevive lending following the worst financial crisis since WorldWar II. Before today, the Dollar Index sank 8.2 percent whilegold rallied 38 percent.
The Reuters/Jefferies CRB Index of 19 raw materials lost1.2 percent today, paring its 2009 rally to 19 percent.
Gold fell for the first time this week as the rising dollarspurred some investors to sell bullion on the heels of a rallyto a record. Gold futures fell 4 percent from a record to$1,169.80 an ounce, set yesterday in New York.
Gold’s Rally
Gold’s rally pushed its 14-day relative strength index, agauge watched by some investors as an indicator of futuredirection, to 83.5 yesterday. Some analysts and investors whouse technical charts view a reading of more than 70 as a signalthat the price may soon drop.
Crude oil for January delivery fell $1.32, or 1.7 percent,to $75.14 a barrel.
Canadian stocks fell for a second day as gold producersretreated the most since April. The S&P/TSX Index lost 1.2percent as Barrick Gold Corp. plunged 9.7 percent.
Two-year Treasuries fell the most since August, sendingyields up as much as 14 basis points to 0.86 percent.
Algricultural commodities also slid. Corn for Marchdelivery fell 8.75 cents, or 2.2 percent, to $3.92 a bushel onthe Chicago Board of Trade. A close at that price would be aweekly drop of 5.3 percent, the first since October. Beforetoday, corn gained 17 percent since the end of September,reaching a five-month high of $4.25 on Nov. 18.
Wheat futures for March delivery fell 15.25 cents, or 2.7percent, to $5.5625 a bushel in Chicago. A close at that pricewould be the biggest drop since Nov. 24 and leave wheat down 2.4percent for the week. Wheat touched a five-month high of $6.05on Nov. 18.
Soybean futures for January delivery fell 11 cents, or 1.1percent, to $10.36 a bushel in Chicago, heading for the firstweekly decline since Nov. 6.
To contact the reporters on this story:Michael P. Regan in New York at mregan12@bloomberg.net;Mary Childs in New York at mchilds4@bloomberg.net.
Last Updated: December 4, 2009 14:24 ESTSource: Bloomberg
